Exam 13: Cost Planning for the Product Life Cycle: Target Costing,Theory of Constraints,and Strategic Pricing

Concurrent engineering relies on an integrated approach,in which the engineering/design process takes place throughout the cost life cycle using cross-functional teams.Strategically,this concurrent approach should give a firm all of the following except:

Lens Care Inc.(LCI)manufactures specialized equipment for polishing optical lenses.There are two models - one mainly used for fine eyewear (F-32)and another for lenses used in binoculars,cameras,and similar equipment (B-13). The manufacturing cost of each unit is calculated using activity-based costing,using the following manufacturing cost pools: LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220.Manufacturing costs and activity usage for the two products are as follows: If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively,and Lens Care wants to maintain market share and profitability,what is the target cost for B-13 and F-32 (round to nearest whole dollar)?

Bryan Inc.produces a specialty top-quality juice machine.The product,the JM50,requires four processes to be completed.Specifically,these processes are exterior construction,pulp filter insertion,painting,and packaging.Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7,24 hours a day every day of the week. What cost management technique does this case illustrate?

During which stage of the sales life cycle of a product do sales continue to increase but at a decreasing rate,and competition tends to focus on cost?

Target cost can be defined as:

Precision Instruments,Inc.is a national firm manufacturing a full line of surgical tools for veterinarians.Recent technological developments have produced a significantly higher grade of steel to make surgical instruments and tools.All of Precision's specialized equipment is designed and calibrated to produce surgical tools using current surgical steel stock.Precision's management wants to begin using the new grade of surgical steel,but recognizes the need to redesign and calibrate existing production equipment and/or purchase newly designed production equipment.Redesign of existing equipment can be done in-house,but requires components from the Swedish manufacturer of the equipment.New equipment will also come from Sweden,but its cost is almost double that paid seven years ago for the existing equipment. Required: Identify the constraints Precision will face as it chooses to upgrade existing equipment or purchase new equipment.There is considerable market pressure to shift to use of the new steel stock for production of surgical tools.

Jamestown Furniture Co.is a small,but fast-growing manufacturer of living room furniture.Its two principal products are end tables and sofas.There are five processes in the manufacturing at Jamestown: Cutting the lumber,cutting the fabric,sanding,staining,and assembly.Jamestown has one employee working in fabric cutting and one employee working in staining.These are relatively skilled workers,and could be replaced only with some difficulty.The cutting and sanding operations are performed by two workers each,and while there is some skill to these operations,it is less critical than for staining and for fabric cutting.Assembly is the least skill-based process,and is currently done by one full-time employee and a group of part-timers who provide a total of 175 minutes of working time per week.The other employees work a 40-hour week,with 5 hours off for breaks,training,and personal time.Assume a four week month,and that by prior agreement,any of the employees can be switched from one task to another.The current demand for Jamestown's products and sales prices are provided below.Jamestown expects demand to increase significantly in the coming months (this depends on whether it is able to successfully obtain the order it is negotiating to get from a motel chain).The materials cost for the table is $150 and $275 for the sofa.

In order to reduce costs so as to reach the desired target cost,Quality Industries should also focus on reducing the cost of:

Ken Yalters,the COO of FreshSkin,asked his cost management team for a product line profitability analysis for his firm's two products - Askin and Bskin.The two products are skin care products that require a large amount of research and development and advertising.He received the report below.Ken concluded that Askin was the more profitable product,and that perhaps cost-cutting measures should be applied to the Bskin product. Seventy-five percent of the research and development and selling expenses were traceable to Askin. Profit before taxes for the Askin product,per life-cycle income statements,is:

Bryan Inc.produces a specialty top-quality juice machine.The product,the JM50,requires four processes to be completed.Specifically,these processes are exterior construction,pulp filter insertion,painting,and packaging.Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7,24 hours a day every day of the week. What is the least amount of monthly capacity you would have to add to the bottleneck(s)to shift the bottleneck to a different process?

Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura Winters,the Vice President for Marketing at QC,concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors.QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495.Winters determined that a price drop to $495 would be necessary to regain market share and annual sales of 10,000 chairs. Cost data based on sales of 10,000 chairs: The current cost per unit is:

Activity-based costing (ABC)and the theory of constraints (TOC)are viewed as methods that are:

The management accountant at Jang Manufacturing Co.collected the following data in preparation for a life-cycle analysis on one of its products,a leaf blower: The stage of the sales life cycle the product is in is:

Excel Manufacturing has received an order for 5,000 units of its only product,Excel-A.Excel is considering a variety of methods to determine the price of the order.Some key information about Excel follows:

Place the five steps in implementing a target costing approach in the proper order: 1 - Determine desired profit 2 - Use kaizen costing and operational control to reduce costs 3 - Determine the market price 4 - Use value engineering to identify ways to reduce product costs 5 - Calculate the target cost at market price less desired profit

A type of strategic pricing based on analytical methods is used to:

Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura Winters,the Vice President for Marketing at QC,concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors.QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495.Winters determined that a price drop to $495 would be necessary to regain market share and annual sales of 10,000 chairs. Cost data based on sales of 10,000 chairs: If the profit per unit is maintained,the target cost per unit is:

Gail Johnston is the CFO of Lancet Technologies,a manufacturer of parts and supplies for the cable TV industry.Gail has developed an analysis of the profitability of the firm's two main product lines,cable hardware,and cable supplies.Based on the analysis,she concludes that cable hardware is the most profitable of the firm's product lines.

Place the phases of the cost life cycle (value chain)in the correct order from upstream to downstream activities.

TwoShaft Inc.manufactures a wide variety of parts for recreational boating,including boat engines.The component is purchased by OEM (Original Equipment Manufacturers)such as Mercury and Honda,for use in the larger and more powerful outboards.The units sell for $660,and sales volume averages 32,000 units per year.Recently,TwoShaft's major competitor lowered the price of the equivalent part to $590.The market was very competitive,and TwoShaft realized it had to meet the new price or lose significant market share.The controller assembled the following data for the most recent year: The target cost for maintaining current market share and profitability is (round to nearest cent):